Martha Stewart Living Earnings Fall

ANNE D'INNOCENZIO

Published 8:00 pm, Tuesday, February 19, 2002

AP Business Writer

Martha Stewart Living Omnimedia, bruised by a slump in advertising in its television and publishing segments, said Wednesday that fourth-quarter earnings fell 3 percent but still matched Wall Street expectations.

The multimedia company also said that it expects earnings for 2002 to be slightly below analysts' projections.

In a conference call, company executives declined to talk about whether it planned to continue to sell the Martha Stewart Everyday brand to Kmart Corp., which filed for Chapter 11 bankruptcy on Jan. 22. Martha Stewart has a provision in its contract allowing it to leave Kmart in bankruptcy, but that would have to be approved by a bankruptcy judge.

At least for now, Martha Stewart is standing by Kmart. "Kmart stores are still open, Martha Stewart Every Day products are on the shelf, and we are receiving royalties," said Martha Stewart, chairman and chief executive during the conference call.

Martha Stewart said that its accounts receivable due from Kmart totaled approximately $11 million at Dec. 31 and approximately $13 million as of the date of Kmart's filing. The amount that will be realized from this receivable will be based in part upon what the bankruptcy court decides. The company said that Kmart has publicly indicated its intent to "assume" the contract in spring 2002.

Due to the range of possible outcomes, the company said that it has not made any adjustments to its fourth-quarter or full-year results for any write-down in value of its accounts receivable from Kmart. As the situation resolves, the company said it will make adjustments to its financial statements, as necessary.

For the three months ended Dec. 31, Martha Stewart Living earned $5.7 million, or 12 cents per share, compared to net income of $5.9 million, or 12 cents per share, a year earlier.

Revenues were $85.1 million, down from $85.5 million in the year-ago period.

The company's publishing revenue in the quarter was $47.3 million, compared to $53.6 million a year ago. As expected, advertising pages in Martha Stewart Living declined 21 percent in the quarter, reflecting a difficult advertising climate, as well as the impact of the events of Sept. 11.

Television revenues were $9.6 million, compared with $11 million in the year-ago period, primarily reflecting a decrease in syndicated advertising revenue caused by lower industry-wide advertising rates.

Revenues in the Internet/Direct Commerce segment of $17.6 million represented a gain of 6 percent from the same period a year ago.

Revenues in its merchandising segment increased 96 percent to $10.7 million, due in part to the company's new contract with Kmart, effective Aug. 1, 2001, and revenue from the launches of decorating products at Kmart and the introduction of Martha Stewart Everyday in Japan.

The Martha Stewart Every Day brand generated sales of $1.6 billion last year, an increase of 26 percent from the year-ago period.

Sharon Patrick, president and chief operating officer of Martha Stewart, said that despite the discounter's bankruptcy, there have been no sales declines of its Kmart product. In fact, she said retail sales have been up 22 percent year to date, from the year-ago period.

Earnings for 2002 are expected to be in the range of 50 cents to 55 cents. Analysts polled by Thomson Financial/First Call expect 58 cents per share.

James Follo, chief financial officer, said during the conference call that the earnings shortfall was in part due to Kmart's expected closing of 400 stores at the beginning of Martha Stewart's second quarter, which begins April 1.

The company projects revenue growth of 10 percent for 2002.

For all of 2001, net income rose 3 percent to $21.9 million, or 45 cents per share, compared with net income of $21.3 million, or 43 cents per share in 2000.

Revenues increased 4 percent to $295.6 million, from $285.8 million in 2000.

Shares of Martha Stewart were up 4.1 percent, or 64 cents, to $16.20 per share in trading on the New York Stock Exchange.